The power of III

27 August 2011

WASHINGTON (Reuters) - President Barack Obama urged Americans on Saturday to recall the spirit that united the country after the September 11 attacks and take part in a national day of service to mark the anniversary next month. [Hmm...yes, I do recall that--people helping people, nothing to do with sacrificing time and effort for the .gov]

In remarks acknowledging the "great challenges" that confront the U.S. economy[that is, impossible to overcome], and could hurt his reelection chances next year[ya think?], Obama also sought to rise above the partisan political rancor that has divided Washington all summer[LOL].

"As we mark this solemn anniversary, let's summon that spirit once more. And let's show that the sense of common purpose that we need in America doesn't have to be a fleeting moment; it can be a lasting virtue[i.e. collectivism is good--and should be indefinite part of this HM]," Obama said in his weekly radio address. --Reuters article, this morning via news.yahoo.com.

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It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings. Where there's service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.--Ayn Rand

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The goal of the “liberals”—as it emerges from the record of the past decades—was to smuggle this country into welfare statism by means of single, concrete, specific measures, enlarging the power of the government a step at a time, never permitting these steps to be summed up into principles, never permitting their direction to be identified or the basic issue to be named. Thus, statism was to come, not by vote or by violence, but by slow rot—by a long process of evasion and epistemological corruption, leading to a fait accompli. (The goal of the “conservative” was only to retard that process.)

The moral cannibalism of all hedonist and altruist doctrines lies in the premise that the happiness of one man necessitates the injury of another.--Ayn Rand

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To Serve Man:"It's a cookbook"(Damon Knight short scifi story written in 1950, made into a Twilight Zone episode)

26 August 2011

I do not like this Uncle Sam, I do not like his welfare-warfare scam.
I do not like these dirty crooks, or how they lie and cook the books.
I do not like when Congress steals, I do not like their secret deals.
I do not like these dirty bombs, or how they kill with no qualms.
I do not like their fiat money, it is worthless paper and oh so funny.
I do not like taxation as theft, I will be happy when none are left.
I do not like this kind of hope. I do not like it. nope, nope, nope!

25 August 2011

One of the oddities that seemed out of whack in this morning's weekly Unemployment Claims update was the explanation for the spike in this week's receipents of government generosity: apparently it had to do with the BLS handing out weekly benefits checks to striking Verizon workers. We will repeat the key word from that sentence because it bears repeating: "striking." Now, we may be wrong here, but if one is striking, one is not u-n-e-m-p-l-o-y-e-d, and hence the US government should probably not be using taxpayer money to double pay such individuals who have singlehandedly decided to forgo pay in return for making a labor statement. Otherwise, it kinda kills the whole "sacrifice" thing. And, lo and behold, as it turns out, we are not wrong. From JP Morgan: "Striking workers are generally not eligible to receive unemployment insurance benefits, but it looks like about half of the total amount of striking workers filed claims over these two weeks to formally determine their eligibility." Generally... except when the administration is willing to hand out money to anything and everything with a pulse. After all, there is that massive $2.2 trillion Bank of America balance sheet that has to be funded. And with direct reserve funding already failed, as per QE1 and 2, the only other possible way is via deposit increases. Alas, by the time this money could possibly be saved, it has been spent 5 times, the other 4 hitting Bank of America's bad credit card receivables department.From JP Morgan:Initial claims increase during week ending August 20, with or without striking workers Initial claims for the week ending August 20 increased 5,000 to 417,000 from a figure for the prior week that was revised up. The Department of Labor noted that the Verizon worker strike generated about 12,500 claims during the week ending August 13 and about 8,500 claims the week ending August 20 (not seasonally adjusted). Striking workers are generally not eligible to receive unemployment insurance benefits, but it looks like about half of the total amount of striking workers filed claims over these two weeks to formally determine their eligibility. If we remove these striking workers from the claims data to give us a better indication of labor market conditions, claims would have increased about 10,000 to 409,000 between the weeks ending August 13 and August 20; the four-week moving average for claims during these weeks would be around 400,000, showing improvement relative to the July labor market survey week when the four-week moving average was 422,000.Continuing claims for the week ending August 13 declined 80,000 to 3.641mn. Continuing claims have been basically flat since the end of March, but this was the largest single-week drop reported since mid-February. The insured unemployment rate for the week ending August 13 ticked down from 3.0% to 2.9%, equaling the low for the recovery to date.

Think of it. Those in charge have only recently sworn — yet again! — that if we keep interest rates at zero, keep battling the symptoms of recession and unemployment with spending and jobs programs, clobber the speculators with regulations, and otherwise keep trying to revive moribund industries, all will be well. Just don't cut government spending or let interest rates rise!

So where have we heard it all before? It was the 1930s, when the battle between F.A. Hayek and J.M. Keynes raged in the English-speaking world, not only in the academic journals but in the newspapers in London and the United States.

Hayek gave a series of lectures based on his previous works in German that tried to explain that the ruling elite and their theoretical apparatus had it all wrong.

In a thousand different ways he said the same thing: "To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about."

Further, "because we are suffering from a misdirection of production, we want to create further misdirection — a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end."

The essays in which Hayek so prophetically explained the boom and bust are collected in the most convenient form possible: Prices and Production and Other Works. It is a 528-page book that explores every conceivable aspect of business cycles.

Because this book is in print, it is really inexcusable that the same errors should be revisited upon the world today, strangling growth and driving every major economy further into the depths.

Now, granted, many decades went by when these writings were hard to come by. Many people had only bound photocopies they would let others borrow. But since 2008, the Mises Institute has had them all gathered in a single book, with explanatory material and at the price of $25.

Wherever this book lands, and wherever it is read and studied, the answers to what to do and what not to do are clear as bottled water. Hayek could barely mask his frustration. This was hardly the first time that governments and central banks had tried to cure the bust with the very poison that had destabilized the economy in the first place.

He cites, for example, the expansionary policy of the Fed in 1927, which the Fed itself described as "the greatest and boldest operation ever undertaken by the Federal Reserve System." In Hayek's view, it was this very action that caused the explosion in stock prices that led to the bust that wouldn't seem to go away.

He concludes, already in 1932: "We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown."

Note the constant focus: the root of the problem is to be found in the boom, not the bust.

Hayek's frustration was not so intense as to prevent him from very patiently refuting every theory that imagined that the business cycle was caused by something other than monetary factors. He marched through the theories one by one until he concludes that only a distortion in monetary signaling can cause so many to be so wrong in their investment decisions.

Turning to positive theory, Hayek celebrates J.B. Say's view that, absent such interest rate and monetary manipulation, there can be no tendency for entrepreneurs to make such systematic errors that create economy-wide booms followed by busts.

And here we have the heart of the difference between Hayek and Keynes: one knew that markets work to give us the best of all possible worlds, while governments create and exacerbate malfunctions; the other imagined that governments were somehow capable of both perceiving and correcting malfunctions by means of the printing press, provided the right technocrats are in charge.

The fundamental differences are obvious in the 60-page critique that Hayek wrote of Keynes's own Treatise on Money (1930). The criticism came out in 1931, even as Keynes was working on his General Theory. Hayek — who, as Joseph Salerno points out in the introduction to the collection, was very young at the time but had the courage to correct the current giant of the English-speaking profession — corrects Keynes on point after point.

Hayek offers a polite but devastating demonstration that Keynes (a) was unfamiliar with any of the most sophisticated capital theory emerging from the Austrian tradition, (b) contradicted himself constantly, and (c) was so unclear in his writing and thought that he made serious correction almost impossible.

After this essay appeared, Keynes casually dismissed it with the comment that he no longer accepted the views put forward in that book. Keynes went one step further and wrote a petty attack on Hayek's own book! Hayek was so discouraged by this that he was loath to take up criticizing the General Theory with the same level of detail.

The experience of the 1930s and since underscores that Hayek's view, beautifully presented in this book, is the one that conforms to reality. Hayek is fastidious in crediting Ludwig von Mises for having been the first to link together all the theoretical parts that make up the Austrian business-cycle theory. Mises is "certainly to be regarded as the most respected and consistent exponent of the monetary theory of the trade cycle," he writes.

Hayek's argument is relentless but all the more praiseworthy given the times. Unlike today, where the dissent against the stimulus is intensifying, Hayek and Mises had very few colleagues whom they could count on to back up their arguments. For this reason, however, Hayek, writing in English, must have felt a special burden of proof. He wrote with vigor, scientific precision, and passionate intensity about the entire topic of boom and bust.

It's as if Hayek had an object in his hand, turning it slowly every which way and describing its shape, color, and size in every way he knew how.

It is also in these essays that Hayek first laid out the triangles that illustrate the relationship between time and the stages of production. This was a true innovation and one of his most lasting contributions to economics. The Hayekian triangle is brilliant in its simplicity, but it highlights a point that had been lost on economists at the time and has still not penetrated today: the capital structure is incredibly complex and embeds a vast range of time horizons within the plans of every actor.

Only a full comprehension of this point prepares a person to see how it is that the manipulation of interest rates by the central bank can cause such damage. But Hayek is also careful to note that reversing the course of monetary policy is probably not enough to end an economic bust.

Monetary policy might have caused the boom, but monetary factors alone are not enough to explain the fullness of the bust. There are other factors: taxes, which discourage savings and production; regulations, which block discovery and entrepreneurship; government spending, which draws resources out of the private sector; debt, crowds out investment, and more.

Hayek concludes by calling not only for an end to discretionary policy but also "a radical revision of public policy" in all areas. The same is precisely true today, which is why rereading Hayek's work from the late 1920s and 1930s is at once eerie and enlightening.

Many decades went by before English-speaking readers were made aware of a parallel series of writings that were taking place in Austria at the time. Mises himself wrote during the same period from 1928 to 1936 and on the same issues. His essays are collected in a book that is a kind of companion volume: The Causes of the Economic Crisis.

However, here we find a much clearer presentation: a different personality, a different audience, a different mode of writing and thinking. If anyone is left with a lack of clarity after reading Hayek, Mises provides the essence of the issue at hand in 1931:

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

Those words could have been written this very day, describing our very predicament. So it is with Mises and all the Austrians. They wrote not just for their times but for all times.

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

About Me

Father of three, religious, distrustful of any authority not able to consistently demonstrate competency at its mandated task. Lineally descended physically and spiritually from colonial leadership, Revolutionary War veterans, and veterans of the War of Northern Aggression.